A new deal for the 21st century

Below is an excerpt of a speech titled “A New Deal for the 21st Century: Less Entitlement, More Accountability.” I am scheduled to deliver the keynote talk today in Indianapolis at an event sponsored by the Indiana Leadership Forum.

In a January 2011 article in The Nation magazine, author William Greider bemoans the death of New Deal liberalism: “When the party of activist government, faced with an epic crisis, will not use government’s extensive powers to reverse the economic disorders and heal deepening social deterioration,” Greider writes, “then it must be the end of the line for the governing ideology inherited from Roosevelt, Truman and Johnson.”

Greider is not the only observer to note the end of the New Deal and the related unwillingness of liberals to fight efforts by members of both parties to roll-back the size of government. “[T]he public is being sold a big lie — that our problems owe to unions and the size of government and not to fraud and deregulation and vast concentration of wealth,” former Secretary of Labor Robert Reich told the New York Times. “Obama’s failure is that he won’t challenge this Republican narrative, and give people a story that helps them connect the dots and understand where we’re going.”

President Herbert Hoover said of the New Deal that it was an attempt to crossbreed Socialism, Fascism and Free Enterprise, part of a collectivist revolution led by FDR and carried within the Trojan horse of economic emergency. The New Deal was also a way for the Democrats to finally end decades of largely unbroken Republican rule in Washington. FDR had, after all, nominated Al Smith three times as Democratic presidential nominee. The former New York governor had lost each election. FDR and the New Deal not only enabled the growth of government, but also of the private and public unions that came to underpin the finances of the Democratic Party after WWII.

Today the debate among and between liberals as to how the government should respond to the latest financial crisis is a function of not so much about ideology but of shrinking revenue and burgeoning obligations. The New Deal Model of defined benefits has been replaced with defined contributions or, more recently in the auto industry, profit sharing.

Whereas after WWII the U.S. seemingly had the resources and borrowing capacity to address any national want or need via government fiat, today constraints on resources seems to be the dominant theme. This fundamental lack of growth and revenue, particularly in the private sector economy, is leading to a dearth of job opportunities — a reality that seems to have replaced the open horizons and endless opportunities that are part of the mythology of the American dream. But this is a circumstance that has been building for decades.

At least since the early 1970s, when the Nixon Administration made the decision to leave the gold standard and embrace a series of socialist policy expedients, stagflation, that is, rising prices and receding job growth and economic activity, have been the predominant trends, relieved by tax cuts and spurts of monetary exuberance by the Fed.

Where we are going as a nation looks an awful lot like America a century and more ago, the era of rampant political corruption and financial excess known as the Gilded Age, taken from Mark Twain’s wonderful novel. The Gilded Age was an era following the Civil War that saw rapid growth and relatively low inflation, even compared with the post-WWII period. But it was also a period when large railroads and banks basically ran the country unchecked.

Today large banks are in explicit control of Congress and the White House, and the individual American seems helpless to push back. And Democrats and Republicans alike today look to big business for financial sponsorship. The Robber Barons of the 21st Century are the managers of large banks and of the various government sponsored-agencies, and their corrupt political enablers in Washington.

Liberal advocates such as Greider, Reich and others focus on the bad acts committed by ostensibly private banks and investors during the most recent Fed-induced mortgage boom. Today’s liberals have a hard time dealing with the takeover of our public institutions by large corporations, which are themselves largely unaccountable to their shareholders. Many people fail to identify the corrupt relationship between the federal government and large banks, for example, as driving social issues such as domestic jobs losses, foreclosures and growing disparity between rich and poor.

“Increasing inequality in the United States has long been attributed to unstoppable market forces,” Robert Lieberman writes in Foreign Affairs reviewing the new book, “Winner Take All Politics”. “In fact, as Jacob Hacker and Paul Pierson show, it is the direct result of congressional policies that have consciously — and sometimes inadvertently — skewed the playing field toward the rich.”

The political narrative in America over the past fifty years has been a function of the Cold War, left vs. right, liberal vs. conservative, but is this really an accurate description of the political situation in America today? The focus by some commentators on the rich echoes the debates of a century ago, when Americans felt that opportunities were being decreased by the wealth and power of the great captains of industry and finance, the likes of Carnegie, Morgan and Rockefeller. In the new book, “Exploring Happiness: From Aristotle to Brain Science” by Sissela Bok, the author notes:

“Opinion surveys show that Americans are twice as likely (60 percent) as Europeans (29 percent) to believe that the poor can get rich if they only try hard enough. While most Europeans feel that where you end up is largely a matter of luck or other circumstances beyond your control, fewer than half of Americans agree. Armed with these beliefs, lower-income Americans are less likely to blame society when inequality grows and more inclined to believe that persons of great wealth must deserve their good fortune.”

Today, however, political as well as economic power is exercised by managers such as JPMorganChase CEO Jamie Dimon, whose former colleague Bill Daley is now White House chief of staff. Daley, the seventh and youngest child of the late Chicago Mayor Richard J. Daley, is not only the representative of JPMorgan in the White House, but is the replacement for Rahm Emanuel as chief fund raiser for Obama in the 2012 general election.

“These banks again have unfettered access to the very top of the political decision making in the United States,” says MIT professor Simon Johnson, “and reflects the fact their status is completely undiminished, despite all the mistakes they made and all the damage they did to the rest of the economy.” Johnson argues that unless the largest banks are broken up, another major financial crisis is inevitable, a view that shared by a number of other Americans in and out of government.